TCS Daily

No Fear

By Brock Yates - April 17, 2002 12:00 AM

Cover your ears. The Cassandras are at full cry. Not only is the entire Middle East about to incinerate due to the Israeli/Palestinian mega-riot (not yet a real war, yet, despite hysterical claims to the contrary) but the nation is about to be brought to its knees by another horrendous spike in gasoline prices.

You may recall that gasoline prices briefly bumped against the two dollar-a-gallon barrier during the last two summers, causing widespread predictions by the pundits that our economy was plunging toward a great depression. Yet within months after the panics one could find places in the nation where a gallon could be purchased for less than a dollar.

As I recall, such volatility falls within the parameters of that sometimes-forgotten law of Supply and Demand. This of course was the law that the Kerry/McCain congressional cabal chose to ignore with their central planning nonsense centered on jacking up CAFE standards to absurd and dangerous levels.

Now the screams rise that Iraq (joined by the graceless dolts who run Kuwait, whose bacon we saved a decade ago) is cutting petroleum output as a protest to Israel's attempt to save its nation and its culture. Disaster is upon us again...the oil weapon is about to be triggered and the Four Horsemen of the Apocalypse are forming up over the horizon.

To which I am inclined to say, so what?

Even if OPEC joins Iraq and Kuwait and Iran, etc. and shuts off their spigots entirely, I say, so what?

To be sure, such an action would jolt the economy, but like their failed blackmails in the 1970's, the suffering will be mercifully brief, because of two often-ignored realities:

  • One: The world is awash in oil. Saudi Arabia is currently producing at only 80% of capacity. Any embargo by them or their associates would instantly destruct their one-product economy, plunging them deeper in the Dark Ages than even they could tolerate. Moreover, OPEC members and non-members would quickly jump ship to fill the supply gap. In 1973 the Arabs controlled 70% of the world oil market. Today that percentage is 40.

  • Two: The Mullahs, operating as they do with mindsets better suited to the 10th Century than to the 21st, haven't the vaguest notion about the West's greatest power source: Intellectual energy. As long as that energy source is permitted to operate within a free and unfettered market economy, continued revolutions in technology and the ensuing improved quality of life can be staggering. The computer, the internet, telecommunications, space travel, medical advances, finances, etc. are only at the head of an endless list that benefits every form of human life.

Yes, we consume 20 million barrels of oil each day, 60% of which is imported. But does anyone seriously believe that the Saudis or any other Persian Gulf state can do more than inflict brief mischief on this economy?

Of course the disruption would be unpleasant, but the law of unintended consequences would instantly overcome the OPEC mullahs and they know it. Any serious cutback in supply from them would radically stimulate production across the world outside their control. Venezuela (current troubles notwithstanding) Mexico, Brazil (offshore), Asia and Africa (new gas-to-oil technology) and of course Russia with millions of unexplored square miles are now in play. Moreover, Canada is developing new fields in Alberta and any OPEC cutbacks will hopefully energize efforts to open our own Alaskan ANWR tundra paradise.

We currently import 23.5% of our petroleum from the Persian Gulf. (17.6% from Saudi Arabia) down from 27.8% in 1977. It dropped as low as 16.9% in 1996 until booming economy and low prices caused the steady increase to current levels. This has been good business for the Mullahs. They are managing to keep prices above 20 bucks a barrel, which makes for lavish living (private jets are expensive) while not rocking the interlocking, fiendishly complex international petroleum market.

They fully understand that any serious cutbacks, other than to make a symbolic political statement, would ultimately spell doom for their one-product economies. They've long since given up tents for marble mansions and camels for Ferraris. They're dumb, but they're not stupid. I wish I could say the same for our fellow countrymen who reflexively wish to shackle the intellectual power of this economy with frivolous and destructive central planning.

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